On September 6, a panel of experts gathered at the Design Museum in London, UK, for the second Principal Voices roundtable of 2006. The guests discussed corporate ethics and social responsibility in front of an invited audience.

An essay about the discussion can be read here and a page of key quotes here. Following is a full transcript of the roundtable.

Participants:

• Victoria Hale, founder of the Institute for OneWorld Health, a non-profit pharmaceuticals company which develops drugs for poorer nations.
• Malini Mehra, founder and director of the Centre for Social Markets, which promotes social justice and sustainability in business, working notably in India and China.
• Richard Reed, co-founder and CEO of Innocent, a UK-based company which produces fruit-based smoothie drinks and aims to operate in an ethical and ecological way.

(James Smith, chairman of Shell UK, the co-organizers to Principal Voices, also took part in some of the debate as a planned participant was unable to attend.)

Moderators: Charles Hodson (CNN) and Robert Freeman (Fortune magazine).

Throughout the transcript, underlined words are linked to news stories or reference in outside Web sites offering more information on that particular subject. CNN does not take any responsibility for the content of outside Web sites.

For ease of navigation, the discussion is separated into the following parts:

1/ Introductions, Victoria Hale outlines the lack of drugs for developing world diseases and the work of the Institute for OneWorld Health. Click here
2/ Richard Reed describes Innocent's corporate ethos and the problems of maintaining ethical standards in a fast-growing company. Click here
3/ Malini Mehra explains the work of the Center for Social Markets and India's long tradition of corporate responsibility. Click here
4/ James Smith argues that corporate social responsibility cannot be ignored by modern businesses. Click here
5/ Are multinationals targeted too much by campaigners, and local firms in developing nations let off the hook? Click here
6/ Do corporations have values, or are these only a product of the people who work for them? Click here
7/ How do you square social responsibility with the needs of investors? Click here
8/ Is there an increasing convergence between the work of businesses and non-profit organizations such as charities? Click here
9/ What role should other parts of society -- consumers, governments etc -- play in encouraging corporate responsibility? Click here
10/ The work of industry in lobbying governments over climate change. Click here

INTRODUCTION by Charles Hodson and Robert Freeman, and PANEL INTRODUCED.

ROBERT FREEMAN: Firstly, Victoria, perhaps you could give us a bit of a history of how you go to this point, why it took a non-profit company as opposed to a for-profit pharmaceutical company, to do the work that you're doing. And give us some of the examples, if you can, of the diseases and the drugs that you are working with.

VICTORIA HALE: Thank you. It's a pleasure to be here.

The beauty of the pharmaceutical industry is its power and ability to have tremendous impact. Who is the industry impacting, we have to ask ourselves? At this point, new medicines that are being developed are for us, for us who are in this room. That's great for us but there are people who have diseases that we don't have and if pharmaceutical companies are the only ones capable of developing new medicines then what about those people, what about the people at the bottom of the pyramid?

What about the half of the world that has worms in their intestines? You're all post-breakfast so I'll talk about this. What about the two million babies who die each year of diarrhea? What about the one, two or three million -- we can't even count accurately -- children who die of malaria each year?

While we are developing increasingly more elegant and beautiful and individualized medicines for ourselves, how can we not take care of the rest of the world, considering that those tools are there? Bringing those discoveries and those developments and research opportunities together to make medicines for half of the world is something that we as humanity need to come together to do.

ROBERT FREEMAN: Isn't that an indictment of the pharmaceutical industry, though, that you have an entire industry that is based on only selling medicines to those who can afford them, because the market is not big enough or lucrative enough for certain other drugs? You chose to start your own non-profit company to do this, but is there a better way?

VICTORIA HALE: The pharmaceutical industry has many, many opportunities, many choices. It is a discovery machine, a research machine, that just cranks out opportunities and can only develop a few of those each year. And, if you're a business -- many of you are in business -- which would you choose? Which would you keep in your portfolio?

The industry has chosen -- and wisely so -- the drugs that lead to great business opportunities and great returns, and profitability.

The problem is that when you have great, profitable opportunities -- let's say blockbuster drugs -- that you could have in your portfolio, and then you have a drug for malaria, or diarrhea, cholera let's say. You could take one more drug into your portfolio this year. Which one are you going to choose?

It's because drugs to treat people in the West, to treat ourselves, bring back such a profit that it bumps out the other diseases, it bumps out the other drugs. So I believe that it actually is not viable to expect industry to have competing products that bring back very substantial returns and little or no return in the same portfolio and to do it well. It would be stop-start, let's see if we can put anybody on that project, and I don't believe that it would go very far.

ROBERT FREEMAN: Who do you collaborate with you? Who are your funders, what is your relationship with the pharmaceutical industry, with governments in Third World countries where you have to operate. What is the network you are working with?

VICTORIA HALE: Good question. We are a small, not for profit organization. We are funded by the Bill and Melinda Gates Foundation (Click here for Gates Foundation homepage) at this time, we have been granted $150 million to be distributed over the next five years by the Gates Foundation. We're very appreciative of that.

We collaborate with anyone it takes to get the job done, really. Our first drug is back fever -- has anyone in the room heard of back fever? No? Visceral leishmaniasis is the technical term for it (Click here for external page explaining visceral leishmaniasis). We are working in north-east India. We chose India because it has an infrastructure that we can work with. So we work with the Indian government, many branches of the Indian government. Our staff joke that we have become Indian though this process -- you have to.

We're working in the state of Bihar (Click here for external page on Bihar state). It's not a logical place to begin working, but it is the center of this disease. We work with state government officials as well. We work with pharmaceutical companies -- big pharmaceutical companies are coming in to work with us in partnerships, so that one little company doesn't have to do it all and so we can move on to bigger diseases. We chose a small disease to begin with.

We work with the World Health Organization (Click here for WHO homepage), because when you enter a country to work and do clinical trials, which are human experiments, on poor people, you really have to be sure that your motives are correct. So, coming in with the World Health Organization is important, or other UN agencies.

We'd like to work with companies who are outside the pharmaceutical industry. There's so much work to do in health it goes beyond product development, vaccine development and drug development. There's logistics, there's transportation, there's information management, there's all kinds of opportunities.

(Start of Part 2)

(RICHARD REED INTRODUCED)

CHARLES HODSON: It's fascinating, you have a whole company ethos which is based around the whole idea of corporate social responsibility and you combine that with enormous success. Richard, can I ask you, do you think your commitment to corporate social responsibility has been one of the factors that has allowed you to produce this extraordinary vertical take-off in business?

RICHARD REED: We don't call it CSR, or corporate social responsibility, I feel slightly uncomfortable with that as a phrase. We just try and do business in a way that we think business should be done. But first and foremost we are doing business.

I feel uncomfortable sharing a platform with someone like Victoria because her organization is so pure. At the end of the day, 10% of our profits are given away to charity, yes, but that still means we are keeping 90% for ourselves, and I don't think we can gloss over that fact. I'm definitely in a business.

But I believe in our commitment to keeping things natural, to trying to do things in a way that has a lowest-possible impact on the societies and the environments in which we have an influence, and then to redistribute some of the wealth that we create.

I think it has helped the business, but not in the ways that people would typically think. I don't think it's really led to better PR, I don't think it's led to getting more retailer distribution, I don't think it's led to us having better consumer loyalty, not least because we tend not to do a lot of promotion about the things in that are that we do.

What it has delivered to us in terms of commercial benefit is that intelligent, talented people stay part of the company. I've got this incredible retention of what I would see as incredibly intelligent, committed people. I think that the more intelligent you get, and the more aware you are of the way the world works and the problems there are, it becomes untenable to work in an organization that's not trying at least to help a little bit in that area. So for me the commercial benefit is one of talent retention.

But that's only part of the reason that we do it. We do it because we're independent -- I set it up myself with two friends -- and it's just how we want to do things. Since a very young age I've been organizing jumble sales to save the whales and all the rest of it, and it's just kind of a continuation of what's in the DNA of us as people.

CHARLES HODSON: Do you think it would work if you were Unilever, if you were turning over billions? If you became large and powerful, would you still be able to write this way of thinking into your DNA in the same way and still make a commercial success?

RICHARD REED: I hope I get the opportunity to test that theory, I really do. I aspire to the ethos by which we do business to be thing that underpins us as we go forwards.

I also think society makes an assumption that big business is bad and small business is good. We get a lot of PR credit just because of the fact we're small, so we must good. It doesn't work like that. Good is good and bad is bad.

There's plenty of bad small companies and plenty of brilliant big companies. I think what every institution, what every entity, what every individual has to do is do what they can in proportion to themselves, to the scale of their resources and their size. I aspire for us to be doing that for as long as we are around.

CHARLES HODSON: Can you foresee a point, though, at which you will become large and the pressures -- perhaps the financial pressures,. you want to go to the market and that kind of thing -- mean it will become rather more difficult to operate and think in the way that you are doing at the moment?

RICHARD REED: Yes, I absolutely do, but I am going to hopefully have a track record of being able to prove to people that we reason why we got to the market in the first place is because of the nature of how we've done business. And the more I talk about it publicly now, the harder it's going to be for me to go back on it in the future.

We called ourselves Innocent for the very reason that if you put that name at the front of your bottle, it's kind of like a rallying call to journalists everywhere to try and prove that you're not. We want the pressure. We don't want to be let off the hook.

I find it amazing how so easily, businesses can get reputations for being socially responsible, and no one's actually checking, no one's going behind the PR to work out what is this company actually doing? I think we should welcome and encourage us to analyze ourselves, the companies that we buy from, analyze institutions that we support, and try and look through the marketing and work out what are they actually doing?

(Start of Part 3)

(MALINI MEHRA INTRODUCED)

ROBERT FREEMAN: Malini, can you talk a little bit about your experiences in working with your organization, what it's like to talk about corporate social responsibility issues with people who are struggling just to get by in their businesses?

MALINI MEHRA: Perhaps it would be a little bit easier if I was to explain why we have selected the constituencies that we do work with, because they are quite different from the business models that Victoria and Richard have described. I'm an Indian and I'm part of a community of 20 million Indians across the world in what we term the Indian diaspora. The other great diaspora that we focus on is the Chinese diaspora. There are 40 million overseas Chinese, outside China.

These two communities are particularly important to global business practice, because we have been entrepreneurs for a very, very long time. For those of you who are history buffs and can cast your mind back to 16th century and 17th century economics, the two largest economies in the 1600s were the Chinese and the Indian. So when we talk about emerging markets, we should be referring to the re-emergence of China and India on a global scale.

What has happened over the long history of Chinese and Indian entrepreneurship is the development of a particular set of values, precepts, behaviors, which influence the way in which they see enterprise and the role of businesspeople. Given that in particular my own country is extremely socially stratified -- all of you will be familiar with the term caste -- how these companies play out their social, economic and political role can accentuate or indeed can improve social relations, and the important political and economic differentials that there were in society.

And so we have chosen to work specifically with these two diaspora communities, because we think that for far too long, well-intentioned individuals and non-governmental organizations, the global business community, was focused on the West, and not on the rest.

That's what still makes it possible to have an international campaign where you focus, for example, on the GlaxoSmithKlines of this world (Click here for GlaxoSmithKline homepage) but you don't focus on (Indian-based pharmaceutical firms) the Ciplas and Ranbaxys (Click here for Cipla homepage and here for Ranbaxy homepage), whose business model is not that much different. And they're going after the blockbuster drugs and they're not focusing on drugs that the Indian population could benefit from.

So we think it's very essential to change the field of focus and bring into prominence the role of indigenous industry in countries like India and China. In India we've had a very mature economy. It's not been a market economy but it has been a mature economy for over 100 years.

One of the earliest codes of conduct was designed by the Tata group of companies (Click here for Tata Group's statement of values), by Tata Steel, which is going to be celebrating its centenary next year. And there is a long history of engagement by business, because we have had not the most effective government systems in our countries. So business has perforce had a social role to play. You can see that in the company town up and down India -- they are of course there in China, but in a different model.

So we want to remind people of that history and of the increasingly important role that companies from this part of the world will play in either taking the high road to corporate practice, and maintaining a strong emphasis on responsible business behavior and conduct for the coming period, or they will take the low road, and they will make a convincing argument that it's OK to exploit your workers, to have human rights abuses in companies, and that at the end of the day if you are generating growth for the economy that's really all that matters in these poor countries.

The other key focus is the ethnic minority communities on our doorstep here (in London). Again, the focus of our work is to reach the parts that other don't. We look at the immigrant communities in this country and the role that they can and should be playing in a much broader, deeper discussion about the role of business in society. That goes to the heart of what we understand in a multicultural London about integration bringing a sense of citizenship for all people, so once again we have an integrated discussion about the role of business in society and we don't just focus on the dominant market leaders.

To give an example of what we do here, in the UK we've been focusing for many years on the role of the Asian community. Those of you who are from here will know that currently, the richest person in the UK is a tycoon called Lakshmi Mittal (Click here for Mittal Steel profile of Lakshmi Mittal), and he's Indian. Over last few years he has become a steel baron of global proportions, but previously he was a no one, no one knew of his name outside of the steel industry. He's now the richest man in this country and I would like him interrogated on the role his companies play with regard to their practices in Romania, in Ireland etc. That's what we focus on.

We also focus at the very small end of the sector. Most people are not employed by multinationals, they're employed by small and medium enterprises, and in countries like my own they're employed by the informal sector. If we're talking about the formal practices of established, legal entities which are multinational then we're talking about an absolutely miniscule sentiment of the global business community.

We work with them not with a corporate social responsibility agenda as such. We talk about leadership, we talk about civic engagement, we talk about the positive role they can play, the opportunities that there are to actually exert leadership within their communities. For us this is strongly about the citizenship agenda, and CSR is really a Trojan horse for addressing a much wider agenda about socio-economic and political transformation.

ROBERT FREEMAN: The example of the Tata Group -- as you said, from their outset they had a very broad social vision for a corporation. They ran schools, hospitals and basically provided the social welfare that the government didn't provide. In China you have a similar model with the state-owned enterprises, which also carry on many non-core activities in their business, such as schooling, healthcare etc.

There is a conflicting point of view, both in those countries and, typically, in the United States, which says: this is crazy for a business to be doing this, it's not good business. You're spending all this money on activities not related to your business. Why don't you as a business get out of this and let the government, or whoever, handle it?

What do you say to businesses about why it makes economic sense, to whatever extent they are still providing these kinds of services? In the United States you see a lot of companies stripping away their pension funds and healthcare benefits, because it's considered to be smarter business and better for making profits, which is what companies are set up to do.

How do you respond to that? Why should a company engage in these kinds of social activities?

MALINI MEHRA: It's a very interesting question. When we started, we set out all the statistics so we could demonstrate to companies that it's in their financial interests, it's a bottom-line issue to do the right thing.

I think that if you go down that route, which we did originally, you've lost the plot. It's not about being able to wheel out the correct statistic, it's about being able to have a discussion about values. If you have a leader of a company like Richard (Reed), they are only going to be able to transmit what the social, the cultural ethos, the vision of that company, should be, if they believe in it passionately.

They're not going to be able to do a better job if they have someone who is an ersatz CSR manager who then wheels out 10 arguments making the business case for sustainability and making the business case for CSR. That is just cosmetic, and that will never actually transform the cultural values of the organization.

Coming back to Tata, it has emerged almost every year as the most respected company in India. And yet in the last few years, it's been overtaken in terms of size by the Reliance group of companies (Click here for Reliance group home page) which, for better or for ill does not have a purer than the driven snow reputation, and has attracted a great deal of critical comment for alleged malpractices.

Reliance is now the biggest group. Tata is by itself, it has remained emblematic and it has not been able to move to rest of industry with it. What we have not been able to do is to generalize the Tata vision, which came from a very charismatic person who founded Tata, Jamseti Tata. It was his vision that cascaded down the century, and was built into the DNA. So generations of people who worked for Tata imbibed that ethos. That's the way the culture was transmitted.

And yet because they did not then generalize it and did not go on an advocacy campaign, we never got a generalized thing.

VICTORIA HALE: May I add one point about companies should do this? I argue that young people, the young and brightest minds, can choose any sector they want to go into. They can choose any educational path they want to go to. And if you want the youngest, brightest, most passionate individuals, who are going to work the hardest and be the most creative, you have to offer them more than just the opportunity to make a living. They want to choose a company that means more than a paycheck. They want to talk about their life in a holistic manner.

(Start of Part 4)

(JAMES SMITH OF SHELL JOINS THE DISCUSSION)

CHARLES HODSON: James, I think the issue that's arising out of all of this is why is CSR important to a company? In particular, why is this way of thinking important to a company like Shell, which is a large, hugely successful company owned by its shareholders and delivering profits unto those shareholders.

JAMES SMITH: What CSR does is broaden and deepen the management challenge, it doesn't shift the management challenge. You've still got to be extremely effective at the marketing, at the operations, generating the cashflow, and now you've got a huge new range of things that you've got to think about which is fundamentally about your legitimacy in society and whether society is, in a sense, going to tolerate you, and in another sense going to support you.

In a well-supplied markets, where the choice to the consumer is a very simple one, if sufficient consumers make a choice in favor of one company and against another because of their perception of the social mores of that company, then the impact can be very positive or devastating. So I think the consumer can have a huge impact.

The other issue is employees. You have to be able to motivate your workforce, they have to believe they are working for something that's worthwhile. Equally, recruitment is very important. People will be thinking not just about their career and their pay, but also about their own social values and how those around brought into their workplace.

CHARLES HODSON: Do you think that the parameters are changing? Surely it must have been easier to be accepted as legitimate as a company, let's say, in the 19th century or early 20th century. That does impact countries like Shell. A hundred years ago no one looked at what you doing in areas like the Niger Delta, where you were operating overseas. Now it's quite the opposite. Do you think that those pressures are building up to the point where they are genuinely a market pressure?

JAMES SMITH: I believe they are fundamentally a market pressure. Transparency and scrutiny lies behind what you were saying, and I think the immediate availability of information, and the media, has a huge impact on companies such as ourselves. We have to account for ourselves.

CHARLES HODSON: I have to ask you about something you mentioned yourself first, that is the Niger Delta. Because that, surely, in the case of Shell, is -- let's not sugar coat it -- a catastrophic failure of legitimacy. You talked of 1,600 communities. They're up in arms against Shell. Or am I getting something wrong here?

JAMES SMITH: I don't know that they are up in arms against Shell. But you will find that there are communities there that are very unhappy with Shell, there's no question about that.

CHARLES HODSON: You're getting people kidnapped -- that's a failure of legitimacy, isn't it?

JAMES SMITH: One of our colleagues in Nigeria was killed two weeks ago. It is so. If you look at the reality of Shell's operations round the world, the Niger Delta is by far the most difficult area in which we have to operate. And we have to be very careful in testing our own motives and our own actions there.

We have a belief -- I have a genuine belief -- that by being there we are doing a little bit better than not being there. Because people occasionally say to us, you talk about sustainability, surely your business in Nigeria isn't sustainable? Shouldn't you up sticks and pull out?

I think there's two parts to the answer there. From a financial point of view, from a shareholder point of view, we have a great deal invested in Nigeria, a huge amount, and a lot of oil and gas reserves there, they are very important to our strategy. And equally, if you talk to the people who have worked there, and the senior leadership in Shell, there's a belief that if we pull out, things won't necessarily get better, things might not be as good. Which isn't to say that we've done things perfectly -- we should have got the gas flares out sooner than we're going to, we're going to get them out in 2009.

(Start of Part 5)

CHARLES HODSON: I think this ties in very directly with Tata, and what you (Malini Mehra) were talking about -- legitimacy in the direct locality where you are operating.

MALINI MEHRA: I think we have to be mindful of something that's very obvious and that's politics. And the politics of Shell's operations in a country like Nigeria are that there are only certain things you can say publicly and do, because of the domestic relationship you have with the government.

To put that in the Indian context, what that's meant is that when we've had multinational corporations who've wished to see a higher degree of social emphasis on health issues, workers' rights. whatever it may be, they have not gone around grandstanding in India because you don't do that. As a Western multinational, you have a different right of engagement in the political and economic discourse, as opposed to a well-respected -- or not so well-respected -- local company.

That's what makes your (Shell's) situation in Nigeria very much more difficult. A few years ago, for the first time a major national campaign, which then became international, happened against an Indian company, Hindustan Unilever (an Indian company separate from the Unilever multinational) because of medical refuse at a thermometer factory run by them.

Greenpeace ran an international campaign against them. For the first few weeks Greenpeace ran as it as about a Western multinational operating in India. Then they had to change tack, because actually, it was about an Indian-run company. That changed the terms of the debate.

So what I think that we need to get real about is that is, yes, Shell does bad things in some countries, it's a large corporation, and it does good things in other countries, and you can take it to task where there is verifiable abuse. But what about all of these other companies, when you've got your 90% focus on Shell, that you're letting off the hook?

I think that's why we need a much more balanced debate and why we say: don't get fixated either on the West, or on the best and not the rest. Because what you are doing is creating a comfortable environment for all the reckless, the rapacious, the unscrupulous majority of companies which are operating in our parts of the world -- which happen to be domestic."

CHARLES HODSON: The fact is that reputation is the lever, isn't it? Shell has a reputation, and if you want a stick to beat a company like Shell with -- this is the reality, isn't it?

MALINI MEHRA: But you guys in the media should be able to help us correct that, the laziness of the campaigners who only focus on Western multinationals. In countries like Nigeria and India, some of the worst perpetrators of environmental and human rights abuses are domestic companies and entrepreneurs, and you should help the domestic media take them to task.

ROBERT FREEMAN: The same lever is available with domestic companies.

MALINI MEHRA: Indeed, give them a bit more profile.

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